I see no reason why it couldn't be used with a flank march.
Thinking historically, the fake elements ought to count towards the total when comparing sizes as the apparenty smaller flank march would take fright as soon as it saw the large dust cloud. The rules don't support this though.
Of course, the exaggerrated flank march would probably makes its decision to fall back or not based on its true size compared to that of the opposition.
This would result in the (game) situation where each side announces its exaggerated size, but responds as its actual size - possibly leading to both being driven back.